The recession trade took hold yesterday, states Bill Baruch of

E-mini S&P (June) / E-mini (NQ)

S&P, yesterday’s close: Settled at 4129.00, down 24.75
NQ, yesterday's close: Settled at 13,219.00, down 51.00

Fundamentals: The recession trade took hold yesterday. Industrials like Caterpillar and Deere lost 5.4% and 4.2%, respectively, The Energy Select Sector SPDR Fund (XLE) gave back 1.8% from Monday’s surge, and Consumer Discretionary was broadly lower though strong showings from Amazon, Nike, and Chipotle staved off the worst. Some of this can be attributed to banking fears that reemerged at the forefront after JPMorgan Chief Jamie Dimon said, “The banking crisis is not yet over and will cause repercussions for years to come.” SPDR S&P Regional Banking ETF (KRE), the regional bank ETF, was down more than 3% and pared losses to finish at -2.2%. Although Financial Select Sector SPDR (XLF), the financial sector ETF, lost only 0.93% yesterday, names like Bank of America, Wells Fargo, and Morgan Stanley were all down more than 2%.

However, there were bright spots within Healthcare, Communication Services, and Tech, helping to lift sentiment from the worst levels of the session. Surprisingly, the weak session came on the heels of February JOLTs data showing job openings below ten million for the first time since June 2021. A resilient amount of job openings has underpinned the tight labor market, a theme that is front and center leading into Friday’s Nonfarm Payroll report. A tight labor market is a leading indicator of inflation and will be a crosswind for the Federal Reserve turning dovish amid other economic fears.

Furthermore, the first look at March job growth via ADP Payrolls this morning came in lower than expected at 145k versus 200k and did very little to jump-start risk sentiment across E-mini index futures. This week could prove to be an inflection point, given signs that inflation is coming down, and the market is exemplifying more concerns about a recession. Is this emphasized due to early quarter re-positioning, or will this become a theme until the Federal Reserve vocalizes a pivot? For now, this increases the importance of today’s Services sector data. 

Do not miss our daily Midday Market Minute, from yesterday.

Technicals: After a non-directional start to the week where many individual names experienced excessive volatility, it is easy to get lost in the forest and miss the trees; the E-mini S&P is trading at six-week highs, and the E-mini NQ has broken out to nine-month highs. Yes, the trend is higher, we remain cautiously Bullish (down from last week’s very Bullish), and we are not in a bear market. A recession rotation might be taking place under the hood, but right here, we are talking about index futures, and consolidation at current levels, one that allows the index futures to digest the recent run, is healthy.

The E-mini S&P did extend its range on the week lower yesterday, and there is an area of two key supports highlighted below, whereas the E-mini NQ held Monday’s low and a critical area building at 13,154. Today will go a long way in helping to distinguish whether indices are digesting or eroding their recent gains. We do have several critical areas of support detailed in our levels below, but when taking a step back, the S&P and NQ will remain constructive and build a potential bull flag for higher prices when holding above rare major four-star support.

Crude Oil (May)

Yesterday’s close: Settled at 80.71, up 0.29

Fundamentals: As noted in the S&P/NQ section, the recession trade took hold yesterday. Crude Oil did gain marginal ground yesterday, but Gasoline slipped -0.74%, Heating Oil barely reacted to the OPEC+ news, and CRAK, the VanEck Oil Refiners ETF, fell -2.2%. There were certainly political jabs behind Saudi Arabia’s swing production move over the weekend, but it also cannot be ignored there are real global growth fears, and the announcement is an attempt to stabilize Oil while getting ahead of those fears.

Weekly EIA inventory data is due at 9:30 am CT. Last night’s private API survey helped lift prices early, posting -4.346 mb Crude, -3.97 mb Gasoline, +3.693 mb Distillates, and -1.035 mb at Cushing. Expectations for today’s official report are -2.329 mb Crude, -1.729 mb Gasoline, and -0.396 mb Distillates.

Technicals: Price action in Crude is sideways but holding onto the Sunday night spike very constructively and responded to our major three-star support at 79.65-79.79 perfectly. However, it has slipped below our momentum indicator which aligns closely with yesterday’s settlement to create the first key resistance. As the session unfolds, we must continue to see a response to major three-star support and action above our Pivot and point of balance.

Gold (June) / Silver (May)

Gold, yesterday’s close: Settled at 2038.2, up 37.8
Silver, yesterday’s close: Settled at 25.101, up 1.08

Fundamentals: Gold and Silver responded strongly to yesterday’s JOLTs data, the first read below ten million since June 2021. However, the move likely comes with pent-up strength after a muted reaction to Monday’s weak ISM Manufacturing data, and as Jamie Dimon reinvigorated banking fears. Gold responded to the soft ADP Payrolls report this morning by briefly extending its range higher, but the emphasis today with be March ISM Non-Manufacturing due at 9:00 am CT, after the final SPGI read released at 8:45 am CT.

Technicals: Gold settled at the highest level since the onset of the Russian invasion of Ukraine on March eighth, 2022, when closing at 2043.3, and Silver settled at the highest level in nearly a year. The precious metals complex, and specifically Gold, is doing everything it needs in order to break out to fresh record highs, but make no mistake, there is still heavy lifting to be done. For Gold, there is technical damage that price action must chew through aligning with spike and settlement highs from both August 2020 and March 2022, detailed in our levels below. As for Silver, its breakout above the December-February highs faces major three-star resistance.

Learn more about Bill Baruch at Blue Line Futures.